Athens is staring down a tunnel with only a glimmer of light. Europe confronts a scenario of total darkness. Dropping some of the debt is the only way to avoid itGreece could soon steer into a long, dark tunnel with only the faintest glimmer of light at the end. If it doesn’t pay the IMF at the end of this month, finance for its banks could be cut off, forcing Athens to print a new currency. Outside the euro, Greece could find itself without the means to pay for basic imports like fuel and medicine. After a while inflation should start to eat into debts, and a cut-price drachma should lure extra tourists: therein lies that glimmer of light. The difficulty, however, is that to lock in its new competitive edge, Greece would have to run its economy well and increase the efficiency of its industry. If it can’t do these things, and its current predicament hardly inspires confidence, then the relief of devaluation would soon give way to panic about inflation.At least Greece understands that it is approaching a moment of destiny. Europeans elsewhere – who have not suffered a comparable economic collapse or the concomitant spike in suicides – may not realise that they are perched on an ominous brink. Some say that, unlike in 2011, a Greek exit could today be managed. After all, the fire-fighting funds scrambled together back then are now on a permanent footing. Eurozone output is today growing, not shrinking. There are even signs of one or two of the peripheral countries once dismissed as the PIIGS beginning to fly. Greece’s creditors are today essentially public institutions, and so – the voices of complacency continue – there is no longer the same risk of contagion in private markets. They point, too, to the eurozone bond-buying scheme, formally approved by the EU’s top court in Luxembourg this week, which stands ready to douse down the panic that would flare up. Continue reading...
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